Trading And Exchanges: Market Microstructure For Practitioners

NEW STAMP Trading and Exchanges . FINANCIAL MANAGEMENT ASSOCIATION Survey and Synthesis Series The Search for Value: Measuring the Company's Cost of Capital Michael C. Ehrhardt Managing Pension Plans: A Comprehensive Guide to Improving Plan Performance Dennis E. Logue and Jack S. Rader Efficient Asset Management: A Practical Guide to Stock Portfolio Optimization and Asset Allocation Richard 0. Michaud Real Options: Managing Strategic Investment in an Uncertain World Martha Amram and Nalin Kulatilaka Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing Hersh Shefrin Dividend Policy: Its Impact on Firm Value Ronald C. Lease, Kose John, Avner Kalay, Uri Loewenstein, and Oded H. Sarig Value Based Management: The Corporate Response to Shareholder Revolution John D. Martin and J. William Petty Debt Management: A Practitioner's Guide John D. Finnerty and Douglas R. Emery Real Estate Investment Trusts: Structure, Performance, and Investment Opportunities Su Han Chan, John Erickson, and Ko Wang Trading and Exchanges: Market Microstructure for Practitioners Larry Harris Trading and Exchanges Market microstructure for Practitioners LARRY HARRIS NEW STAMP OXFORD UNIVERSITY PRESS 2003 OXFORD UNIVERSITY PRESS Oxford New York Auckland Bangkok Buenos Aires Cape Town Chennai Dar es Salaam Delhi Hong Kong Istanbul Karachi Kolkata Kuala Lumpur Madrid Melbourne Mexico City Mumbai Nairobi Sao Paulo Shanghai Singapore Taipei Tokyo Toronto Copyright 2003 by Oxford University Press, Inc. Published by Oxford University Press, Inc. 198 Madison Avenue, New York, New York, 10016 www.oup.com Oxford is a registered trademark of Oxford University Press All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of Oxford University Press. Library of Congress Cataloging-in-Publication Data Harris, Larry, 1956Trading and exchanges : market microstructure tor practitioners / Larry Harris p. cm.—(Financial Management Association survey and synthesis series) Includes bibliographical references and index. ISBN 0-19-514470-8 1. Markets. 2. Exchange. 3. Commerce. I. Title. II. Series. HF5470 .H37 2002 332.64—dc21 2002004622 9876 Printed in the United States of America on acid-free paper This book is dedicated to the memory of the victims of the September 11, 2001, terrorist acts in New York, Virginia, and Pennsylvania and to the honor of those people whose heroic actions on that day saved so many lives. flcknowledgments Many people contributed to the success of this project with their encouragement, advice, knowledge, and expertise. I would not have started this project without their interest, and I would not have completed it without their support. The book is much better for their contributions. I received my first encouragement as a graduate student at the University of Chicago, long before I knew anything about market microstructure. Professor Arnold Zenner advised me to publish a book based on lectures I would give when I became a professor. Although it seemed unimaginable to me at the time, I never forgot his advice or his confidence in me. I look forward to the time when I will read a book written by one of my students. Several publishers suggested that I write this book. I particularly appreciate the interest shown by editors Mike Junior, Randall Adams, Maureen Riopelle, Kenneth MacLeod, and Paul Donnelly. I have no doubt that they all would have been very helpful in the development of this book. I regret that I could not work with them all. Their encouragement, enthusiasm, a